Guangdong officials are seemingly making a nod to history. After all, the province secured its reputation as a pioneer for economic reforms on the mainland in the late 1970s.

Professor Lu Yuanli of Shenzhen University said Guangdong feels it is its duty to be on the frontline of the mainland's economic reforms. "This is a tradition. When Deng Xiaoping in 1992 encouraged Guangdong to catch up with the 'four dragons', Guangdong has taken it as its historical responsibility to develop fast and well economically," he said, referring to the reform architect's focus on narrowing the development gap with Singapore, Taiwan, Hong Kong and South Korea.

In addition to Guangdong's target for 70 per cent of its state enterprises adopting a mixed-ownership structure by 2017, meaning allowing some form of private ownership, the province wants to see private investors on board all SOEs by 2020. This requirement excludes those state enterprises deemed to be subject to national security considerations, with investors left guessing on the industries that may be off-limits.

Gilbert Ho, managing partner of AID Partners Capital, a Hong Kong-based private equity fund, thinks Guangdong will struggle to meet the 2017 deadline for the first phase of the reforms.

"Even if the Guangdong government is willing to sell out stakes of its state-owned enterprises, it would take time to identify the right buyers and to close the deals. The buyers, including those foreign investors, on the other hand, would need time to do the due diligence and negotiation." he said.

"The government may well be able to achieve the target if it packages those deals in the right way. One of the keys for successful reform would be finding a way to let the investors, especially foreign investors, feel comfortable about the operating control post-investment."

Guangdong also wants to create about 30 strong enterprises - defined as having annual turnover of 100 billion yuan (HK$126 billion) or assets of 100 billion yuan - co-owned by the provincial government and private investors. In addition, the paper stipulates reform of SOE management, with top performers rewarded with bonuses or shares, the collective payout of which must not exceed 30 per cent of company profits. Poor performers, including those who lead a company to three consecutive years of losses, will be sacked.

Raising efficiency is at the heart of the SOE reform push led by Beijing. The success of these efforts hinges on the provincial governments, as they own far more such enterprises than the central government.

As at the end of last year, the State Council controlled 113 SOEs, while about 145,000 such enterprises came under local governments. The Guangdong government holds SOE assets valued at 4.5 trillion yuan; the scale of assets in the boom province highlights the need for local governments to tailor reform plans to their circumstances.

While Guangdong's determination to offer states in state enterprises is evident, it may not be easy to find the buyers.

Ho said foreign investors would generally prefer to put their money into privately owned enterprises rather than SOEs, as the interests of founders and investors are more aligned. "In the case of the SOE, the government is the major shareholder and these companies have their own traditional management style. Even if the foreign investors are willing to introduce management reform or advanced technology to the SOE, the government as the major shareholder may not immediately respond due to considerations such as social and political concerns."

Derek Lai, managing partner of the southern region for Deloitte China, said the key question is how "mixed ownership" can be truly implemented.

The government views mixed ownership as selling part of a state enterprise, he said, but the authorities are willing to offload stakes only in those sectors that are not involved in "national economy and the livelihood of the people" and "national security". Such restrictions would restrict the scope of the reforms, he said.

For industries that lack such sensitivities, such as retail and manufacturing, Lai said overseas private capital presented the opportunity for some SOEs to move to a stock listing in Hong Kong or on the mainland.

"However, it is undeniable that this reform would face huge difficulties and impediments and that generally speaking, there exists many problems in certain SOEs such as irregularities in finance and management, lack of investment supervision, unreasonable manpower structure, etc," Lai said.

"From the perspective of an investment, a stake in such an SOE is not an attractive option," he added, while noting that some investors may be interested in the land resources that come with a deal.

"SOEs involved in the industries like energy, agriculture, modern logistics have investment value - as to how much this investment would be worth, this would need accounting professionals or other experts to help determine," he said.

Lai said Guangdong had the benefit of proximity to Hong Kong and its status as an international financial centre, enabling firms from the province to tap talent and capital for its reform drive. "The Pearl River Delta was one of the first regions that opened for reform and is the most mature in the area of marketability," he said.

Brett McGonegal, chief executive of Hong Kong-based investment firm Reorient Group, also sees the 2017 target as fairly aggressive for such a sweeping and revolutionary change, but believes the SOE reform will eventually prove successful.

"My belief is that after some of the growing pains are worked out, Guangdong will reap the rewards of a well-intentioned refit of under leveraged business lines," he said. "Innovation and technology will now be grown at a much faster pace by way of savvier operational teams and, most importantly, cheaper capital. The sectors that should see the most immediate effect should be technology, biotechnology and financial services."

McGonegal said SOE reform may be a catalyst for expansion at some state firms.

"Look at what Alibaba and Tencent have done in the financial service arena. What if their financial services business were combined with a provincial trust bank or commercial bank? The size and the opportunities are limitless."

Ye Tan, a business commentator who writes for mainland financial newspapers, said that Guangdong, compared with Beijing and Shanghai, stands out for its flourishing private business sector. "The current issue is how to define mixed ownership," she said. "Does that mean public floating? Or does it mean the introduction of private investment? If private capital holds only 0.1 per cent of an SOE, does that mean that is has mixed ownership?"

Guangdong authorities said a number of SOEs had been selected to carry out experimental reforms, including Guangdong Holdings and some 20 companies in the technology industry. The province is renowned for its creative enterprises in the technology and internet sectors, as well as a more developed entertainment industry compared with northern China.

Ye expects the investment door will open to Hong Kong businesses gradually, though currently only domestic enterprises are allowed. "Domestic firms will be the first step and foreign capital will be introduced some time later."

Teng Bingsheng, associate dean of the Cheung Kong Graduate School of Business, said Guangdong was developing fast and the central government had granted Qianhai - an economic zone in Shenzhen - favourable policies. But Hong Kong will maintain its position as a leading international finance centre in the "predictable future", he said.

"Qianhai may pose some challenge on the surface, however, the core values of Hong Kong can't be shaken," Teng said of the zone created as a test bed for financial liberalisation.

"Many people may feel it is a pity that Alibaba failed to let listed in Hong Kong," he said, referring to the e-commerce giant that floated its shares in New York this month. "But it shows us that this is a place with regulations. On the mainland, very often things are unpredictable."

KEY NUMBERS

Guangdong at the end of June 2014. Source: provincial government.

100 million

3.088 trillion yuan

7.5 per cent

2.35 per cent

16,864 yuan

5.393 trillion yuan

1.399 trillion yuan

357 billion yuan

194 billion yuan

177 billion yuan

US$194.3 billion

US$277.85 billion